How much to add to a loser?

T

trader1974

At the morning opening, finding the exact moment to enter the market is difficult.
If the price moves against you and you add a new position, you get an average price.
If the market then moves in your favor it can be interesting.
But....
If you add too much to the losers the day can end in a big disaster.
One disastrous day can ruin a month's work.
So I see some advantage in adding a loser once. Trading intraday how many times can you add a loser?
What is the maximum recommended?
Is there some kind of statistic about it?
Is it advisable to just never add a loser?
 
you are talking about intraday?

IMO the longer the time frame the better averaging works...like position trading or long term investing. the more you trade off of fundamentals...the more likely the trade is to come back into your favor.

for short term trading, that intraday trade you entered purely on momentum turns into an overnight hold then a week long swing trade and eventually into bagholding a major loser for weeks until breaking point forces you to exit at a 50%+ loss.
 
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trader1974 said:
At the morning opening, finding the exact moment to enter the market is difficult.
If the price moves against you and you add a new position, you get an average price.
If the market then moves in your favor it can be interesting.
But....
If you add too much to the losers the day can end in a big disaster.
One disastrous day can ruin a month's work.
So I see some advantage in adding a loser once. Trading intraday how many times can you add a loser?
What is the maximum recommended?
Is there some kind of statistic about it?
Is it advisable to just never add a loser?
More...

If you are trading intraday, in general, strength leads to strength, and weakness leads to further weakness.

So adding to a loser just risks digging a deeper hole.
 
IMO, there is only one "correct" answer... That answer is, If adds are part of the trade plan at the time of the first entry. Applicable to all trade styles (intraday, swing, investment, etc).

From an intraday pov, you may want to look at the @volpri (journal?) thread. He has been generous with in-depth explanation regarding scale-in method(s) that work for him.

Myself, I only scale-in for pyramiding. For intraday, high volatility is necessary for my usage. Pyramiding is the opposite of your description... scale-in to profitable trades!

Trade On!
 
Only add to high conviction bets on new information. Momentum trades are low conviction where the information is the slope in the rate of change (accelerating or decelerating). Play tight.
 
trader1974 said:
One disastrous day can ruin a month's work.
More...

That is a very true statement, that I've learned the hard way many times over the years.

Lucky for us, we can quantify these questions...why not pull up Excel, and get the following answers:

"If I buy the $SPY on the open, and it falls -0.5% and I double my position there on a limit order, and I place a stop to exit the entire combined position at -1.0%, and I exit the entire position at the close of the trading day, will I make money?"

All of that can be quantified in Excel. Test different parameters. But most importantly, remember - if you don't have a stop actively in the market, you aren't trading, you are gambling.
 
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